SA take-home pay surges by 12% – But will the trend last?

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JEREMY MAGGS: Now for the first time since Covid, South Africans are seeing real growth in take-home salaries in 2024. All of that, I think, is due to a stronger business environment, obviously lower inflation, and we have seen a cut in interest rates.

According to BankservAfrica’s new Take-home Pay Index, the average salary hitting R17 202 in December. That’s an almost 12% jump from a year before. But here’s my question, is the trend going to continue? There are a lot of economic headwinds facing us in 2025.

Economist, Elize Kruger is with me as we break all of this down. Elize, a very warm welcome to you. So what were the biggest factors behind the strong salary growth last year?

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ELIZE KRUGER: Jeremy, yes, it’s quite a heartening development that salaries have started to catch up after two dismal years, 2022 and 2023. I really think it’s about a business environment that has improved notably.

If you just think back about the effect of load shedding in the previous year, 2023, and then the alleviation that the business environment experienced since March 2024 and onwards, that I think has been a major factor during the course of the year.

On top of that, additional factors, such as the moderation in inflation, some relief on the fuel price side, and then we got the interest rate cuts towards the end of the year. So overall, I think the environment for businesses was better.

We noted a further improvement in profitability of companies and that just really gives a better environment for salary increases; a better ability for companies to afford better salary increases.

JEREMY MAGGS: But the question will still remain, Elize, is this sustainable or maybe just a welcome bounce due to all of those factors? In other words, are these increases here to stay or is it just a recovery from weak wage growth, as you mentioned, in ‘22 and ‘23?

ELIZE KRUGER: Jeremy, I think it’s a recovery on the one side, but I think it should prevail into 2025 because on the one side it’s still a catch up. You mentioned the increase in real terms for the first time since 2020. So at current levels, in real terms, salaries are still lagging behind two years ago.

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So there’s still some catch up needed for salary earners just to get back the purchasing power they lost in the couple of years where salaries did not keep up with inflation.

But looking forward and looking at the economic environment, we do expect better economic growth this year compared to last year.

If you look at inflation, at the moment the expectation is for another year of moderate headline CPI [consumer price index], around 4.2%. So from that point of view, I think we could expect a nominal increase that keeps up with inflation in 2025, which will add to this better environment we started to see in 2024.

JEREMY MAGGS: No question that the better downward inflation trajectory is to be welcomed. But in terms of the salary increases, I think you’ve also got to ask the question about inflation versus real play. So inflation might be easing, but are we really better off in real terms as South Africans?

ELIZE KRUGER: Yes, indeed, I do think so in the past year. In the previous two years, obviously we could not say that, with inflation at 6.9% and 6%, it was a clear-cut situation that salary earners did not keep up. But last year, I would say in real terms, you were better off.

I started to see that in retail sales, for instance, picking up nicely towards the end of last year, as well as on passenger car sales. I think a combination of low interest rates and the real wage improvement will start to make an impact on the economy via the retail spending side.

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So I do think there’s an improvement, but as we have just said, two dismal years are behind us, and that catch up will continue to have to play out to really get you to the point where you feel that you are better off.

JEREMY MAGGS: As you mentioned, companies are doing a whole lot better, but I guess the question will be are they passing enough of those gains onto staff or do you think there’s still a cautious approach here?

ELIZE KRUGER: Well, I think a cautious approach is perhaps still the order of the day, given that there are still a lot of headwinds, as you mentioned. But I think things like talent retention and looking at the resources you need to take your company forward should play a role in this regard.

I think we do see a wide variety of different salary increases across different sectors for that matter. So financial services and IT, where skills are really needed and need to be retained, are doing better.

So I think the detail there will really be about what the company needs in terms of their workforce to go forward.

JEREMY MAGGS: You mentioned about the sustainability of this trend in 2025, but what risks, in your opinion, could derail this positive wage trend this year?

ELIZE KRUGER: I do think if we have a weaker than expected outcome on our growth scenario, that could be one hampering factor. Obviously, if we do see inflation suddenly rearing its head to levels that are much higher than what we expect, that could also derail the real increased expectation that I currently have.

But I would say given the base factor on growth, I’m really confident that we will have a better year on GDP growth this year compared to last year.

On the inflation front, obviously we need to keep an eye on the rand exchange rate and what’s happening in the US in terms of tariffs and so on. But even incorporating the latest upward trend in oil prices, inflation is still, in my view and in my model, showing a very moderate outcome for the year.

JEREMY MAGGS: Elize, let me just slip one final question in, if I can, because I think this is important. As you mentioned, salary earners are better off. There is no doubt about that, but all of this is still overshadowed by the millions of people in this country without jobs, unofficially probably 45%, 47% unemployment.

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ELIZE KRUGER: That remains South Africa’s number one problem, Jeremy. As much as we focus here at BankservAfrica on take-home pay and those who do have salaries to report on, the bigger picture is that we need more growth in South Africa to foster employment.

I think even the 1.7% real GDP that I’ve pencilled in for the year is way too low for making really a meaningful difference in our employment scenario. On top of that, one could add that we need to look at our labour policies as well to enable more job opportunity creation in South Africa.

JEREMY MAGGS: Elize Kruger, thank you very much indeed.

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